A lost opportunity
Nov 23 2012 , Kolkata
Bengal was the first state to pass SEZ Act in 2003. But big projects of Wipro, Infosys remain in limbo, as Mamata Banerjee’s cash-starved govt can ill-afford to dole out any incentive
West Bengal happens to be the first state to pass the West Bengal SEZ Act 2003 in the country under the Left rule, a few months before Tamil Nadu passed it, and two years before the centre passed the Act in its new form. The state, now ruled by Mamata Banerjee-led Trinamool Congress also happens to be the first to put a blanket ban on SEZs. And well, it could also possibly have been the first to propose an alternative model, if TMC government’s relationship with the UPA-2 government had not soured the way it has.
Experts say Banerjee has harmed the larger interest of the state, now standing on a fiscal precipice. Banerjee’s moves to offer an alternative package to prospective high profile investors like Wipro and Infosys (who have been insisting on SEZ status for their projects in the state) are likely to go haywire.
Banerjee opposition to SEZs is not new. It is well known that the Trinamool Congress could grab power in West Bengal because of Banerjee’s standoff on Singur and Nandigram against land acquisition and special economic zones (SEZs). Expectedly, her government had to take a strong and pro-people stance on SEZs in the state.
Infosys has been among the first victims of the TMC government’s “absolute no-no” to SEZs. Its proposed 50-acre development centre at Rajarhat in Kolkata has been hanging fire for years. The ambitious project had first been put off when, in 2004, when WBHIDCO asked for Rs 2.16 crore an acre and the company thought that price was exorbitant. In 2008, the state got into an arrangement with a private developer to jointly build an IT township. Companies such as Infosys and Wipro were allotted land in the proposed township, but it was soon found that the private developer was coercing people to sell land for the project. The township was abandoned. Eventually in November 2010, during the last days of the Left government, the firm reached agreement with WBHIDCO to buy 50 acres for Rs 75 crore. The Left also promised SEZ status for the Infy and Wipro projects. In fact, when the MOU was originally signed in 2008, the Left led government had maintained that the campus would have SEZ status.
However, soon after assuming office, Banerjee made it clear that she could not change her party’s policy of not granting SEZ status. “It is our cabinet decision decision that land acquisition and SEZ is not part of our policy. How can I change my policy for a particular company?” the CM repeatedly asked, prompting the Infy top brass to write to the government proposing to return the 50-acre plot allotted to it for a software development centre if it couldn’t get the SEZ status by March, 2012.
Understandably, Infy maintained that nonavailability of SEZ tag would lead to huge financial strain on the company, while it could avail tax benefits only if it was granted the SEZ status.
West Bengal government’s stance came in for flak and almost instantly sparked off a huge controversy and sharp criticism from political opponents, industry bodies and other quarters, reaching the powers-that-be in Delhi. Under mounting pressure, the state government started working on an alternative to stop the likely exit of IT biggies like Infosys, Wipro, TCS and many others.
According to Arjun Sengupta and Jayanta Sinha, joint secretaries, SEZ-Virodhi Prachar Manch, more than 50 SEZs of different sizes and scales are either running or pending approval in West Bengal.
A minister in the state government not wanting to be named has a simple way out of the imbroglio. “Let the centre waive the clause for state government’s formal recommendations in case of SEZ recognition. In that case, TMC wouldn’t have to eat humble pie and this can be a face-saving formula,” he said.
But, it no longer looks feasible with TMC now out of the UPA2 coalition, and unsuccessfully pushing a no-confidence vote in the current session of Parliament. A second alternative is to offer the software technology park (STP) status instead of the SEZ tag. Banerjee has personally proposed to the centre to “create a new segment under the IT sector and extend with all benefits provided under SEZ norms, without the SEZ tag.”
STP is an export-oriented scheme for development and export of computer software, including export of professional services. The STP scheme provides various benefits to registered units, including 100 per cent foreign equity, tax incentives, duty-free import, duty-free indigenous procurement, CST reimbursement, DTA entitlements and deemed exports.
Besides regulating the STP scheme, STPI centres also provide a variety of services, including high speed data communication, incubation facility, consultancy, network monitoring, data centre management services, and data hosting. STPI provides physical hosting for the National Internet Exchange of India.
A senior state industry department official told FC that anyway the centre was reviewing existing policies to make the STP/EHTP schemes more relevant in the present context, incorporating necessary modifications and additions from past experiences, streamlining the procedure in approval, extension/renewal of proposals of software developers, service providers and infrastructure service providers to make STP/EHTP schemes growth engines for software, IT and IT-enabled services, as well as electronic hardware and manufacturing with an integrated view of domestic as well as export market. The state government has been demanding extension of some of the tax sops enjoyed by SEZ units to STP units as well, he said.
“But again, it would have been easier and smoother to push such a proposal through if the state government had been on good terms with the centre,” the official said, requesting anonymity.
The state government is also working on a formula and methodology to compensate companies like Infosys and Wipro, who are insisting on SEZ status, with other long-term benefits. Without specifying details of such a package, industry and IT department officials said, “It could be quite like fiscal incentives which the state government had been giving to companies like Haldia Petrochemicals.”
However, a second IT department official said, “Such fiscal incentives to Infosys or Wipro’s might cause the state exchequer as much as Rs 100 crore per annum.” Can a cash-starved state like West Bengal afford that?
(With inputs from D Govardan in Chennai)